Free Software Will Win! - The Role Of Free Software Businesses

Free Software Has Come A Long Way Through Volunteer Contributions

So far, Free Software has been advanced primarily by pro-bono contributions
from individuals and companies, and this has been remarkably successful.
In fact the only reason why commercial proprietary
software is still surviving in most areas (in spite of the competition from
Free Software) is that so far there has too little activity around making
Free Software programs appropriate for users who are not so technically
inclined; this must involve professional usability research and testing.
The Business Working Group of the DotGNU project aims to motivate some
entrepreneurs to start Free Software Businesses that will change this
situation.

About Free Software Businesses

A free software business is a company which does not exist solely
to earn as much money as possible without incurring unacceptable risks;
it's a company where contributing to the development and improvement of
Free Software, and upholding the principles of the Free Software movement,
are among the basic values of the company. (Here the term "Free Software"
refers to computer programs where every user has rights to read and modify
the source code, and also rights to redistribute the software, with or
without changes, as source code or in binary form. The Free Software
Foundation maintains a precise definition which can be found at
http://www.fsf.org/philosophy/free-sw.html .
There are also people who, because of differing
views on matters of philosophy, see the appendix, prefer the term
"open source".)

Many people seem to think that there must necessarily be serious economic
disadvantages for Free Software companies. In particular, there is a
widespread belief that companies which invest into Free Software research
and development must be economically disadvantaged in comparison to
competitors which can get the essentially the same rights to use and
redistribute the software without incurring the costs of research and
development: The necessary investment for becoming sufficiently familiar
with a reasonably mature software package is usually significantly lower
than developing it from scratch, therefore it is often assumed that such
"free riders" would have a serious economic advantage over the company
which had the R&D expenses. This discouraging argument has demotivated
many businesses from investing into Free Software R&D.

It is possible to "sell" Free Software, or (more accurately) distribute
it in exchange for a fee. There is a page called "Selling Free Software"
on the website of the Free Software Foundation at
http://www.fsf.org/philosophy/selling.html
which encourages this. However this will in general
not generate enough revenue, most Free Software businesses will have to
sell services. Some promising areas of business include

Consulting services (empowering companies to run in-house business
processes smoothly)

Outsourced business processes (this is one of the reasons why the DotGNU
webservices platform is important)

Training

The Distinction between Investments and Pro-Bono Contributions

From a business perspective, there are three entirely different approaches
for contributing to the Free Software community. One is to through
investments, where the company hopes that the expense will
result in business benefits which are big enough to justify the expense.
The value of this benefit is often divided by the value of the investment
to obtain a quantity called Return On Investment (ROI), and
investments should be made only when the expected ROI is significantly
higher than 100%.

A second approach is to make commercial offerings where from the beginning
a fixed part of the revenue is earmarked for advancing the good cause of Free
Software. This may increase your sales as well as benefiting the cause
if many of your potential customers have sympathies for the Free Software
movement.

Alternatively, and in addition you can make
pro-bono contributions where you use a part of your profits
to advance Free Software projects which you consider important. This option is
generally only available to companies which are very profitable; all other
companies need to consider very carefully what investments will allow them to
reap a good ROI.

ROI from Research and Development Investments

The benefit from Free Software R&D can come in different forms. If you
sell products or services that are directly related to Free Software that
you have developed, you can benefit in two ways. On one hand the Free
Software is used in creating the customer benefit that the customer ultimately
pays for, and on the other way, pointing out that part of the revenue is
earmarked for recovering research and development costs of the program will
make potential customers more inclined to buy from you than from a competitor
who is just using the software without having invested into developing it.

You can also benefit from contributions to the Free Software community
that enhance your reputation in the community, this is explained in the
section "Difficulties with Business
Alliances" below.

Generally speaking, the best ROI can be expected from those research and
development projects which have good synergies with your
commercial offerings and which in addition give you a good reputation in the
Free Software community. Big companies which benefit significantly from
having a lot of good Free Software available need to keep in mind that
they will only be able to build a good reputation in the Free Software
community through making big contributions; this will be expected of them.

The Importance of Business Alliances

At the time of the industrial revolution, starting a successful business
usually required a huge amount of capital, and in some areas of business,
having a lot of capital is still a key factor. For an industrial company, it
is typical to raise capital and use it to buy other companies when the
capabilities of those companies turn out to be of great strategic importance.

For Free Software Businesses, it is (or at least should be) impossible to raise
the kind of capital that this strategy requires, because there are no "hard
assets" that would give the investor real value in exchange for the investment.
In addition, acquisitions of companies that create value primarily through
intellectual work usually don't work out in practice: The acquiring company
tries to install a different corporate culture or at least a different
strategic purpose, thereby causing key people to leave; this process destroys
much of the value of the acquired company.

In addition there are serious problems with acquisitions of companies
in far-away countries with a very different culture. It is quite possible
to have control of the majority of the shares of a company without getting
much real influence on the real-world actions of the company which should in
theory act according to what the majority shareholder says. So the acquiring
company may have expended a lot of capital without getting the desired
strategic benefit.

For these reasons, Free Software businesses are much better off cooperating
with each other instead of trying to control each other through capital
acquisition. the term business alliance will be used from now
on to describe any form of mutually beneficial cooperation between mutually
independent companies.

While business alliances are becoming more and more important in today's
economy, but they generally have a high rate of failure (depending on how you
count, about half of all such alliances fail) and the negative
impact of failed business alliances on the concerned companies is often
very severe. Indeed if both partners in the alliance are not really interested
in anything but their own profits then it is very easy to see why very often,
business alliances fail from lack of trust between the alliance partners.
The vast majority of business alliances are never developed to the full
extent that would be possible if issues of mistrust wouldn't get in the way.

Having a good reputation in the Free Software community helps with reducing
these problems of mistrust. Your company's past and present genuine
contributions to the Free Software community (for example by paying developers
for working on important free software projects through programming, writing
documentation, or usability research) are important to increase the amount of
trust that Free Software minded individuals and companies have towards your
company, while at the same time your company needs to take care to avoid
violating the principles of the Free Software movement. In addition there is a
psychological factor: When two people work on contributing to the same Free
Software project, it becomes very easy for them to develop a strong
interpersonal rapport and a feeling of "we". That also helps to build strong,
stable business alliances between their companies.

Since Richard Stallman's announcement of the GNU project in 1983,
there is a Free Software movement which holds that it is ethically and
morally wrong to deny software users access to the source code of
the programs they use, or to disallow making improvements and
sharing them. In 1998 a large group of Free Software users and
contributors decided to stop using the term "free software" and
say "open source software" instead. While their definition of
"open source software" is almost identical to the definition of
Free Software, the difference between the philosophy of the
open source movement and the philosophy of the Free Software
movement is very significant. The Open Source movement and the Free
Software movement share the values of generously sharing source code
and collaboratively creating community-owned software, but the
movements differ with respect to the underlying philosophy. While the
Free Software movement is based on principled ethical reasoning, the
Open Source movement does not agree with considering the distinction
between Free Software and proprietary software to be primary a matter
of ethics. For example, one of the business models which
Eric S. Raymond recommends in his paper
The Magic Cauldron is to "use open-source software to create or maintain a
market position for proprietary software that generates a direct revenue
stream." This kind of approach is totally unacceptable from a Free Software
perspective.